Dmitry Kay, Co-head of EM FX Buying and selling, Europe at UBS speaks to Markets Media concerning the challenges in reaching finest execution in turbulent markets.
What’s your skilled background, and what’s your present function at UBS?
I’ve been buying and selling for over 15 years and at all times targeted on rising markets (EM). I began within the mounted earnings house with charges, bonds and derivatives, and for the final decade in overseas change. My space of experience is the EMEA area, most notably Russia, however I cowl all EM international markets, and extra just lately I’ve been delivering enhancements to our current rising markets digital FX providing, together with enhancements to our STIR, Swaps, and NDF providing to shoppers.
How would you outline finest execution in EM FX?
Finest execution in rising markets needs to be seen in precisely the identical method as developed market currencies. The precept ought to at all times be to train cheap care to execute for shoppers and what’s honest within the market. At UBS we observe sturdy requirements and have signed as much as the worldwide FX code of conduct. This has helped us outline finest execution, how we implement it and what our shoppers can anticipate from us.
What are the primary challenges in reaching finest execution in EM FX?
The primary challenges in rising markets are the shortage of liquidity and market transparency compared to developed markets. There’s much less worth visibility and fewer transactions happening. Moreover, there are regulatory blocks, resembling credit score line constraints and the impression of political sanctions. This makes it extraordinarily troublesome to outline what the fitting worth needs to be, or what the fitting and honest execution stage is.
How does FX finest execution differ between rising and developed markets?
The value is vital, but it surely’s not at all times what issues most in finest execution in EM. There are elements except for worth that shoppers worth, particularly settlement, the timing of execution and market impression general. So, it’s not simply reaching one of the best worth, it’s about reaching one of the best expertise general that positively impacts the necessities the shopper set out.
How has the volatility of 2022 affected EM FX?
Clearly, this has been an unprecedented yr in areas of rising markets FX, because the onset of market sanctions has affected entry and liquidity. The outcome has been the widening of a variety of spreads, elevated volatility, and it has made the partnership strategy extra vital than ever in executing FX. Purchasers wanted their financial institution companions to assist them navigate the headwinds and guarantee minimal impression on their FX books, which is why it is very important strategically accomplice with a financial institution that has a long-standing pedigree, international attain and experience throughout each EM and developed market currencies.
Is EM FX transferring towards lower-touch buying and selling?
Sure, and no. Rising markets FX is a really broad idea, so it relies upon case by case. For instance, with the Singapore greenback, I’d say sure, that’s transferring in the direction of decrease contact buying and selling as a result of it interacts with the market in an identical approach to a G10 forex.
On the identical time, some rising markets may very well be seen as regressing. For instance, Russia, Turkey and others the place liquidity points have been extraordinarily difficult and current know-how isn’t adequate for such market volatility, you’ll at all times want the insights of the dealer. Nonetheless, as know-how matures you must see extra decrease contact buying and selling in rising markets.
What’s the significance of relationships in EM FX? Does a buying and selling agency should be ‘on the bottom’ in EM?
Relationships, and understanding what drives the shopper buying and selling technique, are at all times key to delivering profitable outcomes. It’s about reaching the entire bundle of companies, together with offering market color and analysis, well timed and constant execution, settlement of transactions, and guaranteeing that in case of misery, that shoppers are properly guided as to their choices.
Because of the international nature of the FX market, having onshore entry has its advantages however will not be vital in right this moment’s extremely related market. At UBS we’re set-up in all main hubs and have experience proper throughout the breadth of developed and rising market currencies, which implies we are able to work together and repair our shoppers’ wants no matter time zone or contact level within the financial institution.
What’s vital about execution channels in EM FX?
We’ve seen a development the place liquid EM has been transferring from principal buying and selling in the direction of algo buying and selling. This can be a development that appears to be choosing up tempo. Algo choices in EM will enhance because of new know-how and funding on this house, however there may be nonetheless warning as to how this can develop into much less liquid EM. For instance, in non-deliverable forwards, the place the present algo choices are nonetheless fairly restricted, however demand from shoppers is rising. The longer term will see the transition of current know-how in G10 and extra liquid EM, into much less liquid EM.
How does UBS distinguish itself in EM FX buying and selling?
It’s about constructing sturdy relations with shoppers by focusing our efforts on the place we are able to ship and create worth. We provide a full service providing throughout all areas and throughout the product suite that’s underpinned by our market pedigree, fashions, knowledge, and know-how. Our EM and G10 franchises work carefully collectively to make sure our shoppers obtain seamless protection throughout all currencies, and by doing so, can apply the identical fashions which were extremely sensible and useful in constructing our curves and pricing instruments, and streaming costs.
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